A new report shows the life insurance industry continues its investment struggles against what are being termed unrelentingly low interest rates. Life insurers are shifting away from stocks to reduce volatility exposure but making riskier investments for potentially better return.
A study by Hartford insurance asset manager Conning analyzed life insurance industry investments for the period 2010-2014. The study combines a discussion of strategic issues facing the life insurance industry with an examination of its investment profile.
“In response to the continued pressures of the low interest rate environment, insurers have been adjusting allocations in the investment portfolio to provide the much-needed extra yield. From 2010 to 2014, insurers have shifted away from stocks to reduce exposure to volatility, and have increased their allocation in yield-boosting investments such … as lower-rated bonds,” said Mary Pat Campbell, vice president, insurance research at Conning.
“This quest for extra yield has cut across the life industry, as insurers of all sizes have been adding credit risk in their investment grade bond portfolios,” said Steve Webersen, Conning’s head of insurance research. “This is especially true of midsized insurers that are invested overwhelmingly in bonds. In comparing investment results between insurers, we also see some of the largest insurers adding risk with below investment grade bonds.”
Earlier this month, Conning said it has reached a deal to acquire a New York corporate credit investment adviser that specializes in high-yield bonds and leveraged loans.